Consider these 7 things before you enter the “gig economy”
The "gig economy" is an emerging class of temporary and flexible jobs. It is on the rise as businesses hire more independent contractors and freelancers instead of full-time employees. Nowadays, if you jump online, you will see job adverts for Uber drivers, freelance writing and design work. For some, the gig economy is an ‘in-between’ where they work a gig outside their regular employment hours, while for others it is a full-time job. But how lucrative is the gig economy and how do you know if it is right for you?
Here are the top seven things to consider before jumping into the gig economy:
1. Are you ready?
The idea of showing up to work in your slippers may sound like a dream come true but it is not for everyone.
Making a full–time commitment to the gig economy can take a lot of hard work and may involve endless uncertainty. You will have to look after your own taxes (more on this below), and these can be a lot higher than you might expect. If you have dependents, there is more at stake for the whole family.
2. The gig economy can be less flexible than you think
One of the main benefits of a regular job is that the pay cheque is regular and so is the amount. With a gig economy, your pay cheque could be random, the amount can vary, and your income is never all that certain. This may not be an issue if outgoing living expenses are low and there are no debt commitments – but no matter how much you earn with a gig, the uncertainty and the variability of your income can mean that if you want to apply for a credit card, finance a vehicle, or even buy a home, a lender will put you through the wringer before they lend to you. Banks and other lenders believe that a variable income makes a customer at high risk of defaulting – not repaying what they owe. If you do manage to gain a line of credit or mortgage, you may find your interest rate is higher than that of a salaried employee purely because you are higher risk.
This means that in a roundabout way, your flexible way of working may offer you less flexibility and choices in your overall life – such as the choice to buy a home in an area that suits you.
While much of the gig economy might be easy to get into, it is not very highly paid. Most of the roles in the gig economy are low skill. Gigs are often contracted work – so you need to pay all your taxes, any running costs, any expenses associated with having the gig in the first place, before you pay yourself. This can result in very little making it into your pocket.
Depending on your gig, perform some careful maths before you get started. Ensure you factor in:
All costs you will incur. Some gigs that seem low cost up front, such as becoming a driver, can be quite expensive once you factor in the price of fuel, car maintenance, cleaning bills, and so on. An article posted by the NZ Herald stated that the reality for most Uber drivers in Australia was that to net $800 AUD per week, drivers would need to pull in around $1500 AUD before their taxes and costs, and the NZ statistics might be even worse as petrol costs more here. This could mean working up to 70 hours a week – regular employment can net the same in around half the time.
The fee or price you will need to charge – if you can control this in your chosen gig. Ask people (not your close friends or relatives!) what they would be willing to pay you. Look at what the competition charges too.
Budget for a buffer for holidays and illness.
Another buffer for your own peace of mind.
The taxes you will have to pay. These can be steep, and are in addition to any GST.
After that, you should have a realistic idea of your actual take–home pay.
Being a contractor to any business means you do not have the same employment rights and entitlements as an employee with an ordinary employment agreement. With a gig, there are no leave provisions – if you are sick, you don’t get paid. If you want to take a holiday, you don’t get paid. On top of no leave, there is very little employment protection (if any) and no employer KiwiSaver contributions. This means that while the gig economy may only be something you’re looking at short-term, it can still have a significant long-term impact.
5. Set goals
When you have a traditional full-time job, you’re typically required to report your progress to your manager and set goals for improvement. In the typical workplace, a manager or supervisor is checking in on your progress – and hopefully giving you feedback on your work. When you become part of the flexible workforce, you will no longer have someone checking your career growth and progress. To remain relevant and continue to provide value to your gig economy, it’s important for independent workers to not only set goals, but to share them with another person. Most of us need to feel accountable to someone to hold ourselves accountable for improving. Studies have shown that sharing goals with someone else, stating them in writing or stating them out loud is essential to realizing career growth and business success.
When you are in regular employment, it’s easy to forget that the on-the-job training is ongoing – and often leads to career progression and personal development. In the gig economy, there is very little upskilling, and as such, very little career progression other than what you set your mind too.
While being a contractor may make you feel like you are an entrepreneur, you own a job – not a business. There is often nowhere for you to move up from that role, and you can limit your opportunities and your income by being in the gig economy. If an individual is considering a gig economy role to supplement their current income, they may instead get best “bang for buck” by staying focused on their primary source of income. This may require further training and some longer hours, but the progression that follows will propel them further and faster than taking on a gig might.
7. Get your ducks in a row
While it’s exciting to jump right in and start working in a gig role, you’ll be forced to take steps backwards down the road if you’ve taken a misstep on the legal processes. Before you make any rash decisions, ask yourself another question.
“Do I have skills that people will actually pay me for?”
This could be in the form of educational background, something you make, or just some extra time on your hands. Whatever it is, the simple truth that applies just as much in the gig economy as anywhere else is that nothing sells without buyers.
The more you can solve problems for your customers, the more you sell
Back in the old days, when the gig economy was the preserve of freelance writers and photographers, its market was well defined. But now, with the rise of apps like TaskRabbit and Fiverr, and online marketplaces like Trademe and eBay, almost anything you have to offer could be placed on the table, if you can find someone to pay for it. So, keep in mind that the gig economy doesn’t necessarily have to be a full-time thing.
Whatever your calling, it pays to know your market. Many apps, like Uber, come with readymade markets that you can tap straight into, but it still pays to find out what their customers need most. To set yourself apart you need good reviews and that means being available when your customers need you and always giving them a great service.
A part of getting your “ducks in a row” probably includes signing up for accounting software and consulting with a tax professional. Keep complete records of sales, costs incurred, and all unusual occurrences such as refunds. In the past, independent contractors and small business owners had to build out the forms and systems they needed. Now, there are several small business software options to make things easier and reduce the possibility of making errors or leaving out critical elements, such as Xero.
The bottom line
The gig economy is not for everyone. It can give the freedom to work your own hours, but it often comes with uncertainty and being overworked for your level of income. It is important to plan before taking on gig work. This includes an honest assessment of your ability to ride out the variability that comes with it.